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Bank Stocks to Buy Now (Maybe)

We used different data for thrift holding companies. For bank holding companies, the table includes data from Consolidated Financial Statements for Bank Holding Companies (FR Y-9C) filed with the Federal Reserve.

Since thrift holding companies don't file a uniform set of numbers at the holding company level, we used thrift financial report data for the companies' main subsidiaries:

  • For People's United Financial (PBCT - Get Report), the data is for People's United Bank of Bridgeport, Conn, although People's United holds several other thrifts, which are much smaller.
  • For Hudson City Bancorp, we used data for Hudson City Savings Bank.
  • For TFS Financial Corp (TFSL), the data is for Third Federal Savings and Loan of Cleveland, Ohio.
  • For Capitol Federal Financial, the data is for Capitol Federal Savings Bank of Topeka, Kan.

The ratio of nonperforming loans and debit securities to core capital and loan loss reserves (here adjusted for government-guaranteed loan balances) is also known as the "Texas Ratio." A level over 20% is often considered excessive, and two holding companies, Bank of America and SunTrust Banks (STI) had Texas ratios exceeding 20% as of Dec. 31.

Of course, the additional $30 billion in funds Bank of America received through the Troubled Asset Relief Program during the first quarter of 2009 are not included in the Texas ratio. After March 31 numbers become available, when we factor in the additional capital new assets from the Merrill acquisition and the government's backstop on losses from some of the Merrill assets, the company's financial picture will change.

Northern Trust

Northern Trust (NTRS - Get Report) had the lowest Texas ratio on the list, coming in at 1.76%. Its strong standing is reflected in its share price and price-to-book ratio, as both are fairly expensive.

Northern Trust's numbers reflect its primary role as a private bank, with loans comprising only 37% of total assets as of Dec. 31. Nonperforming assets comprised just 0.15% of total assets -- the best overall asset quality ratio on the list.

Still, the company's price-to-book ratio of 2.48 looks quite high in the current environment, and its $1.6 billion infusion of TARP money illustrates the headline risk associated with taking the government's money, especially for a company whose business model requires it to "wine and dine" wealthy clients.

Following the media's indignation over its continued sponsorship of the Northern Trust Open golf tournament in Los Angeles, the company said Friday it would repay the Treasury all of the TARP money as soon as possible.
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